BREAKTHROUGH ELECTRIC CAR FORECAST

Pay-Per-Mile Contracts Will Drive EV Adoption – Study
July 15, 2009 (Sustainable Business)

SUMMARY
Electric Vehicles in the United States; A New Model with Forecasts to 2030, from the Center for Entrepreneurship and Technology (CET) at the University of California, Berkeley, is a report of a statistical estimate of the way U.S. car buyers will react to electric vehicles (EV) through 2030. It assesses how EV deployment will affect trade, investment, employment, health care and greenhouse gas emissions (GhGs).

The CET assessment uses a “network externalities model” that considers specifically the cost-benefits on purchase price and operating cost of an as-yet little foreseen marketing strategy change in EVs, the use of switchable batteries and a pay-per-mile contract for accessing a charging network.

Written by UC Berkeley economist Thomas Becker, this is reportedly the first study of how the marketplace will respond to the pay-per-mile service contract financing plan. Proposed most notably by Better Place, the contract marketing concept is set for trials in Israel and then Denmark beginning in 2010 and 2011. Trials will follow in Australia, Hawaii, the San Francisco Bay Area and Ontario, where charging networks are in development. Renault-Nissan will provide the vehicle and the lithium-ion batteries.

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The CET study suggests that the contract approach, which separates the purchase of the battery from the purchase price of the car, is the most practical and cost-effective means of introducing the EV to the car-buying public.

Cost-benefit analysis begins, of course, with the price of oil. The CET paper makes forecasts for 3 rates of EV uptake rates and 2 oil price possibilities. It draws conclusions in 7 areas:

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(1) EV Sales – will be (baseline forecast) 64% of U.S. light-vehicle sales and 24% of the U.S. fleet by 2030 because of the low purchase price/operating cost of EVs with switchable batteries – and the low price includes the cost of building a battery switching and charging infrastructure.
(2) U.S. Oil Imports – will be, with widespread EV use, 18-to-38% lower (2.0-3.7 million barrels per day lower, around the same as the 2.3 billion barrels per day of oil the U.S. presently imports from the Persian Gulf region) in 2030 than they would have been with just improved internal combustion engine (ICE) fuel efficiencies.
(3) The U.S. Trade Deficit – will drop, due to a switch to EVs, from 2008’s $400 billion for imported petroleum (59% of the U.S. trade deficit) to $94-to-$266 billion less by 2030.

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(4) U.S. Business Investment – will grow by 1.1-to-1.5% by 2030 as the result of the development of domestic battery manufacturing and charging infrastructure deployment. It is possible for the U.S. to develop a strong enough battery manufacturing industry to become an auto battery exporter.
(5) U.S. Employment – will grow some 130,000-to-350,000 new jobs by 2030 in the battery manufacturing industry and in construction, operation, and maintenance of a charging infrastructure. These numbers are net gains, after losses among gas station attendants, mechanics, and parts industry manufacturers are considered.
(6) Health Care Costs – will go down because air pollution will be reduced as the result of the increased use of emissions-free EVs. The “net present value” of health care costs will go down $105-to-$210 billion by 2030. These reduced health care costs will come even if the present grid power supply does not change.
(7) U.S. GhGs – will decline 20-to-69% by 2030 over 2005 levels. GhGs will decline 8-to-47% even if EVs are charged with the current grid’s largely fossil fuel power supply.

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COMMENTARY
Acceleration: After 60+ years and 6 generations of ICEs, the Chevrolet Corvette finally proved able to go from 0-to-60-mph in under 4 seconds. The very 1st Tesla Roadster EV, the world’s first lithium-ion battery-powered vehicle, did the same.

Early EVs were accused of poor performance, high cost, and short ranges. No more. A new generation of high-performance EVs is about to hit world markets. It was perfected by breakthroughs engineered for gas-hybrid vehicles and by refinements of the lithium-ion battery. This generation of EVs will perform BETTER than ICE vehicles.

EVs on U.S. roads are now in the thousands but major manufacturers will soon begin mass producing EVs and numbers are about to grow exponentially.

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The growth, according to the CET paper, will be based on a unique and little foreseen marketing strategy, the use of switchable batteries and a pay-per-use contract for access to a charging network.

The Better Place model of EV marketing offers the benefits of (1) increased affordability, (2) increased confidence in range of travel and (3) reduced anxiety about the new technology.

The increased affordability comes from the opportunity to buy the car without having to pay for the high cost of the battery and from being able to take out a pay-per-mile contract based on the amount of use the purchaser wants. The pay-per-mile concept is analogous to cell phone plans for which costs vary according to minute usage.

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With current improved vehicle technologies and federal tax incentives for EV purchases, and subtracting the cost of the battery, the EV purchase price is expected to be $7,500 below the price of a comparable ICE vehicle in 2012. Total “cost of ownership” for the EV will be $0.10-to-$0.13 per mile lower than the ICE (varying according to the price of oil).

Increased confidence in range of travel comes from the widespread presence of the charging network, the accessibility of the vehicle to standard electric outlets when charging stations are inconvenient and with the availability of battery fast-switching stations to make long journeys in EVs like the Tesla with 200-mile charge-up ranges as easy as gas stations now make long journeys in ICE vehicles.

By eliminating the purchase of the battery from the purchase of the car, the concept dramatically reduces car buyers’ anxieties about the new technology. The battery becomes the responsibility of an EV network operator. Any problems have an instant solution in the quick switch-out of the lithium-ion battery. If the technology advances, the car can be upgraded at its next battery exchange.

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With a better price, better performance, a comparable range of travel and the easing of anxieties associated with the new technology, it is easy to see why the study finds the EV will be 64-to-86% of new light-vehicle sales and comprise 24% of the light-vehicle fleet by 2030.

Many factors may play into consumers’ inclination to transition to EVs, some not readily quantifiable and, therefore, only mentioned in passing in the CET study. They include the EV’s better driving performance, the “reputational benefits” of being an EV driver and the possibility that ICEs may in the near future be forced to bear some of the costs of oil’s detrimental impacts on trade, health, and the environment through a national cap&trade system or increased federal and/or state gasoline taxes. All these factors can be expected to drive consumers to EVs.

Current economic circumstances are making the availability of financing very limited. The CET study assumes, though, that financing for the building of charging networks and battery switching stations will be available. Given the many billions committed to a transition to EVs from both public and private sources, it is reasonable to assume financing needs will be met.

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QUOTES
- From the conclusion to the CET paper: “Electric vehicles will overhaul the U.S. light-vehicle transportation network over the next two decades.”
- From the conclusion to the CET paper: “At the 2009 California Institute of Technology commencement, Nobel Prize winner and current U.S. Secretary of Energy Stephen Chu told the graduating class that they must prepare for "the inevitable transition to electricity as the energy for our personal transportation." This paper provides the first set of forecasts for that transition…”

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- From the conclusion to the CET paper: “As a knowledge-driven, high innovation economy, the U. S. stands to gain in [many ways]…The electrification of personal transportation plays to the comparative advantage of the U. S. by shifting a large sector of the economy from a natural resource-driven model to an innovation-driven model. Electric vehicles are an inevitable component of the future of ground transportation and the United States currently has the opportunity to establish itself as a global market leader in this technology.”